Peru Raised to BBB+ by Fitch as Humala Draws Mine Investment

Peru’s credit rating was increased
one level by Fitch Ratings, making it the highest-ranked South
American country after Chile, as the government cuts debt and
mining investment fuels growth.

Peru’s long-term foreign-currency rating, which applies to
bonds denominated in euros and dollars, was raised to BBB+, or
three levels above junk grade, from BBB, Fitch said today in a
statement. The outlook is stable.

President Ollanta Humala, a retired army officer who took
office in July 2011, has maintained previous governments’
“pragmatic approach” to private investment, allowing Peru to
withstand slower global growth, Fitch said. His “conservative”
policy making likely will allow Peru to post a fiscal surplus
for a third consecutive year and cut public debt to the
equivalent of 19 percent of gross domestic product from 20
percent in 2012, it said.

“Peru’s established track record of policy coherence and
credibility as well as the sovereign’s fiscal and external
financing flexibility underpin its strong shock absorption
capacity,” the company said.

The yield on the nation’s 7.125 percent dollar bond due
March 2019 dropped nine basis points, or 0.09 percentage point,
to 2.64 percent at 10:38 a.m. in Lima, according to data
compiled by Bloomberg. The sol depreciated 0.3 percent to 2.7640
per U.S. dollar.

Humala’s Pragmatism

During an unsuccessful 2006 presidential bid, Humala
accused foreign companies of looting the country and said he
would renegotiate contracts. By the 2011 election, he had toned
down his rhetoric, vowing to respect contracts and keep South
America’s sixth largest economy open to foreign trade and
investment.

A drop in prices for copper and gold this year, the
country’s biggest exports, has dimmed the outlook for private
investment. The economy expanded 4.3 percent in August, the
second slowest annual pace since 2010.

Slower growth prompted Humala to sign laws to reduce
bureaucratic delays to mining investment and modernize the civil
service. He met with investors in the U.S., Indonesia and
Thailand this month as he touts a portfolio of $15 billion in
infrastructure projects.

Companies plan $57 billion of mining investment in Peru,
according to the Mines and Energy Ministry. Metals accounted for
56 percent of Peru’s exports in the first half of this year.

Though the pace of Peru’s expansion will slow to 5.4
percent this year, from 6.3 percent in 2012, the country
continues to outperform BBB-ranked economies, such as Brazil,
Panama and South Africa, Fitch said. It rates Chile A+.

“Continued pragmatism under the Humala administration and
a steady progress on reforms suggests that the risk of a marked
departure of economic policies has reduced,” the company said.